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posted Feb 17, 2023 5:25:08 PM

First year reselling (eBay), calculating purchases of inventory & EOY inventory when some COGS was personal item bought prior to current year

Any help is appreciated! 

Sole-proprietor with a DBA here, I'm struggling to confidently calculate COG, mainly worried about my EOY inventory value coming out so it matches 2023 BOY. Here's some background info into the situation:

  • Jan 2022 started selling online with the intention of making a profit as a business. 
  • 80% of inventory sold in 2022 were personal items purchased prior to 2022. (I understand how to value those items using LCM.)
  • The other 20% of inventory sold were items purchased in 2022 for direct reselling purposes. 
  • Ending inventory listed online and available for sale (Dec 2022) consists of both personal items, $3,000 and items purchased for the business, $6,000.

So.. my BOY inventory is 0. Because this is first year of business, it must be zero. 

I know my COGS, $5,000. I guess where I'm struggling is the "purchases" amount and what should be left in EOY.

 

During 2022, I purchased (with receipts) $7,000 of inventory to resell. 

Of the $5,000 COGS only $1,000 of that was actually purchased in 2022 for business purposes the other $4,000 would be the value (LCM) of the personal items sold. 

 

Finally I'm to my point I think, thanks for hanging in there. 🙂

Is my purchases amount going to be $11,000? The $7,000 I actually bought plus the $4,000 COG from personal items? Its the only way I get close to the EOY $6,000 that I actually had on hand that was purchased inventory.

OR should my EOY consist of all inventory listed online & available for sale (Dec 31 2022) which would be $9,000 ($6,000 left from 2022 purchases + $3,000 personal items LCM)?? But I don't even know how I would get to that number of EOY $9k unless I included the $3,000 of EOY personal items in with the purchases??

 

BOY $0

Purch. + $11,000 OR $14,000

COGS - $5,000

EOY $6,000 OR $9,000

 

I think EOY $6,000 is right & I shouldn't include personal items in the inventory value until they actually sell. It just seems wrong to have it in both purchases & COGS. 

 

Tell me I'm wrong or right. Just help me! I think I'm just getting myself more confused. Thanks for your time!

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1 Replies
Expert Alumni
Feb 19, 2023 9:28:01 AM

First off, be aware that you may ignore inventory completely if your gross receipts were under $9 million. In this case, simply report the addition of inventory as Materials or Supplies.

See IRS Pub 334 Accounting for Inventory under "Small Business Taxpayer"
When you reach several million in gross sales, a bookkeeper can handle inventory for you.

 

But if you wish to account for inventory, the cost of personal items brought into the business would be entered as purchases, even though you didn't buy them during the year. If you're keeping accounting books for this company, the value of the personal items would be a contribution from the owner/member and an increase in inventory.